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September 28, 2010

S&P/Case-Shiller Index Showed Home Prices Fell 0.1% in July

Economists say expiration of tax credit will keep prices lower through September

The price of single-family homes dropped 0.1% in July following a 0.2% rise in June, according to the S&P/Case-Shiller home price indexes released Tuesday.

Annual growth rates slowed across the board, in 16 of the 20 metropolitan regions surveyed and in the 10-city and 20-city composites, the S&P/Case-Shiller results showed. Compared to where it was in July 2009, the 10-city composite was reported up 4.1% and the 20-city composite was up 3.2%.

The data were in line with the expectations of economists, who warn that prices will remain low as effects of this year's federal tax credit for first-time homebuyers disappear.

"Home prices crept forward in July. Ten of the 20 cities saw year-over-year gains and only one--Las Vegas--made a new bottom, as the impact of the first-time homebuyer program continued to fade away," said David Blitzer, chairman of the Index Committee at Standard & Poor's, in a statement. "While we could still see some residual support from the homebuyers' tax credit, which covers purchases closing through September 30, anyone looking for home prices to return to the lofty 2005-2006 might be disappointed. Judging from the recent behavior of the housing market, stable prices seem more likely."

Ian Shepherdson, chief U.S. economist for High Frequency Economics Ltd., in Valhalla, New York, who noted that the June number was revised down to +0.2% from +0.3%, said prices are falling even faster now.

"The last date for closings under the tax credit was June 30 so two-thirds of the data in the July index are for transactions conducted under the credit. Activity plunged once the credit expired and, with supply more or less fixed in the short term, prices will now surely decline further," Shepherdson wrote in an analyst note. "The August drop will likely be bigger and September will probably mark the peak rate of fall. But with price-to-income ratios now at sensible levels we do not expect a repeat of the September 2007 plunge in prices."

With July's data 10 of the 20 metropolitan regions reported negative annual growth rates versus the June report when only five cities were negative on an annual basis. Atlanta, Cleveland, Dallas, Denver, and Portland all fell back to reporting declining annual growth rates. Three California cities, Los Angeles, San Diego, and San Francisco, showed the strongest annual growth rates of 7.5%, 9.3%, and 11.2%, respectively, though they also were weaker in July than in June.